Early indications suggest as many as 10,000 houses might have to demolished while more than 100,000 need repairs, the Government said last night.
The Earthquake Commission (EQC) had started land assessments and would begin assessing damage to houses this week.
Fletcher Construction had already started emergency repairs to make damaged homes habitable.
Govt identifying homes for demolition
"There will be some homes that cannot be rebuilt and, as a result of the second earthquake, there are potentially some sections and some areas of Christchurch which will need to be abandoned," Prime Minister John Key said.
He noted that in some areas of Christchurch's eastern suburbs hit by liquefaction, the land had actually sunk.
While Mr Key did not name suburbs, Avonside, Bexley and Dallington have again been badly affected by liquefaction that far exceeded the damage caused in the September 4 quake.
"The early indications are that some [liquefaction] is so significant we can't remediate it in any timeframe ...
"I don't know how large - it might be limited to streets, but it might be larger than that."
The Government said geotechnicians were assessing properties on a plot-by- plot basis.
It is not known how many of the homes earmarked for demolition are on unstable land.
Mr Key said the EQC and officials were working on alternatives to the commission's usual practice of paying the first $100,000 for damage to houses, the first $20,000 for damage to contents and an amount to repair damage to land within eight metres of people's homes.
Private insurers pay the rest.
Mr Key said affected homeowners might instead be offered a cash settlement.
Another option was to offer homeowners a choice of section and building plan in a new subdivision "commensurate with the insurance model you had".
There were options in terms of subdivisions around Christchurch and Mr Key said the Government and the EQC might be able to secure some of that land and put together an "attractive" package for homeowners.
He acknowledged it would be "very frustrating" for some people to move away from where they were living.
However, under the old model, they could have been out of their homes for two years anyway while their homes were demolished, remediation work was carried out to stabilise the land and rebuilding was completed.
Furthermore, homes rebuilt on the same quake-damaged land could be uninsurable.
Asked about the cost of such a package, Mr Key indicated he hoped the Government would not have to contribute additional funding.
"By definition, I think we'll be in a position where the combination of EQC and private insurance will be enough to put them in a new home."
EQC chief executive Ian Simpson said last week the commission's exposure to land damage from both the September and February quakes was relatively small compared to its bill for damage to homes themselves.
An EQC spokesman said the commission's board met yesterday, when the issue of badly damaged land was to be discussed.
More details of the proposed scheme were likely in coming days.
